UpTrajectory Review
The Moneyist column takes a question from a retiree who treats a traditional 401(k) as a checking account, pulling cash for home projects, big bills, and general peace of mind. Fottrell flags the trap: those withdrawals count as ordinary income, and crossing an income threshold triggers Income-Related Monthly Adjustment Amounts, or IRMAA surcharges, on Medicare Part B and Part D premiums. The retiree faces a two-year lag, meaning a large withdrawal today can inflate premiums two years out. The column walks through the mechanics and points toward Roth conversions and qualified charitable distributions as smoother paths.
For a small-business owner, this is not a retiree problem. It is a cash-flow design problem. Owners who pay themselves through draws or distributions already juggle taxable income; adding ad-hoc 401(k) withdrawals on top can shove household income into IRMAA territory without warning. If you run an S-corp or sole proprietorship and plan to tap retirement funds for a renovation, a vehicle, or a tax bill, you need to model the premium hit before you move the money. The column assumes a W-2 retiree; owners face the same math with messier inputs.
What the column gets right: it names the two-year lookback and the cliff-like brackets that make a $1,000 overage cost far more than $1,000. Where we push back: the advice leans on Roth conversions as a cure-all. Conversions are taxable too, and stacking them in high-income years can worsen the IRMAA hit. The column also skims past the point that IRMAA brackets are indexed and shift annually, so a strategy tuned to 2024 thresholds may misfire by 2026. Precision matters more than the column suggests.
Second-order effects hit differently. A married couple filing jointly hits the first IRMAA tier at a lower per-person threshold than two singles; divorce or a spouse's death can retroactively raise premiums. Business owners who defer income into the next fiscal year may dodge a bracket, but retirees on fixed draws cannot. The surcharge also applies to Part D drug plans, so a withdrawal that looks harmless on the Part B side can still raise drug premiums. The column treats IRMAA as a single penalty; it is a stack of them.
Watch the Social Security Administration's annual IRMAA notice each December, and pull your tax transcript before any large withdrawal. If you are within $20,000 of a bracket edge, split the distribution across two calendar years or pair it with a charitable deduction. Owners over 70½ should weigh qualified charitable distributions, which satisfy required minimum distributions without counting as income. The column offers a warning; your accountant can turn it into a schedule.
The column closes with the retiree's habit intact, not broken. That is the real risk. A rule of thumb that feels prudent—stay ahead on bills—can cost thousands in stealth premiums. Treat the 401(k) as a taxable-income lever, not a savings account, and you keep the projects without the surcharge.
“I generally withdraw money from my traditional 401(k) for projects, larger expenses and sometimes just to stay ahead on upcoming bills.” — MarketWatch Top Stories
Takeaway: Model the IRMAA premium hit before any large 401(k) withdrawal, and split distributions across calendar years if you sit near a bracket edge.
Excerpt from the original — MarketWatch Top Stories
“I generally withdraw money from my traditional 401(k) for projects, larger expenses and sometimes just to stay ahead on upcoming bills.”